RE:Sure wish I was better at interpretting news releasesOK - I will give it a shot. I have watched this after the expected Bowtie pullback after the BNN top pick bounce in April. As always, it always gives way after the bounce, this time it kept falling right into the quarter results.
Don't really know the story but decided to read the Quarter results and catch up.
Don't be fooled by the sudden high Net Income results. This was due to a non-cash item to do with an asset. Here is the statement from press release:
Company recognized a deferred tax asset resulting in a credit of $144.5 million to the income statement following sustained production and management estimates that, based on its profit forecast and reserves available, there is now sufficient evidence to recognize the deferred tax asset.
Below are a couple of statements from their results documents, that make Investors nervous:
1. Sterling's operating cash flow during 2014 continues to be below expectations, due to lower than originally anticipated production levels at Breagh, some short term operational issues and lower UK natural gas spot prices.
2. Sterling should have adequate liquidity to satisfy the minimum US$10 million of unrestricted cash (a requirement of the Bond indenture) in the UK subsidiary up to around the end of the third quarter of 2014.
3. We are planning a further financing focused on debt capital markets to address the likely cash shortfall.
4. As of March 31, 2014 the Company was in compliance with both these covenants, however, the company is anticipating a potential breach of the second covenant around the end of the third quarter of 2014 without additional financing (which is currently being planned).
5. While the company is confident that the planned Romanian equity reduction process will result in cash payments upon completion for a share of certain past costs, such receipts are unlikely to be received before the first quarter of 2015. Accordingly, to manage its cash position appropriately, we are planning a further financing.
The bottomline, running out of cash, the need to raise more cash, and the pending financing planned presents uncertainty and risk. With financing there is always a risk of a share issue and further dilution, but they are implying would rather get this done with more debt. Also note they currently have $205M in long term debt. Couple this with their reporting cash flow below expectations with some operational issues, is also a concern. So even though there appears to be good overall potential in this name and the management seems OK, there are many challenges and risks ahead, and no surprise Investors are cautious and holding back from buying. Institutional investors and funds normally stay clear of these type of risks and wait for resolution before investing.